Sep 29, 2021
Commercial real estate is making a comeback, and investors might want to pay attention.
Last week, tech giant Google announced that it will pay $2.1 billion for an office building in New York City. In fact, the deal marks the most expensive sale of a single office building in the U.S. since the pandemic began.
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What does that mean for investors?
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Well, it gives the market a new reason to warm up to real estate investment trusts (REITs), which are publicly traded companies that own income-producing real estate. On the day that Google’s purchase was reported, several office REIT stocks shot up.
If companies continue to expand their office facilities, it could lead to increasing demand for office space — a major catalyst for office REITs.
Here are three office REITs well-positioned to capitalize on this trend. They yield up to 4.9%, which investors can pounce on using just their spare change.
Boston Properties (BXP)
First on the list is Boston Properties, the largest publicly traded developer, owner, and manager of Class A office properties in the U.S.
The company has a portfolio of 197 properties totalling 51.5 million square feet. BXP generates recurring rental revenue as its portfolio has a weighted average remaining lease term of 7.9 years.
Boston Properties has a strong focus on gateway regions with long-term rent growth prospects. Its top three markets by net operating income are Boston (34%), New York (28%), and San Francisco (21%).
The business has shown some solid improvement lately.
In the second quarter of 2021, the company’s funds from operations (FFO) — a critical measure of a REIT’s operating performance — totalled $268.6 million, or $1.72 per diluted share. That represented a sizable increase from the $236.9 million, or $1.52 per diluted share of FFO the REIT earned in the year-ago period.
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Paying quarterly dividends of $0.98 per share, Boston Properties offers an annual dividend yield of 3.5%.
To be sure, Boston Properties trades at $113 per share. But you can get a piece of the REIT using a popular stock trading app that allows you to buy fractions of shares with as much money as you’re willing to spend.
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Vornado Realty Trust (VNO)
If you’re bullish on real estate in NYC, look no further than Vornado Realty Trust. This REIT’s portfolio is concentrated on premier office and high street retail properties in the Big Apple.
The company’s portfolio consists of 20.6 million square feet of Manhattan office space in 33 properties, 2.7 million square feet of Manhattan retail space in 65 properties, nearly 2,000 units in ten NYC residential properties, among others.
Vornado earned an adjusted FFO of $0.69 per share in the second quarter of 2021, up from the $0.56 per share it generated a year ago. The amount was also in excess of its quarterly dividend payment of $0.53 per share.
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Vornado shares are trading quite a bit lower than their pre-pandemic level — down more than 30% over the past two years — and offer a very generous annual yield of 4.7%. If demand for real estate continues to surge in NYC, this REIT could be worth owning with some digital nickels and dimes.
SL Green Realty Corp (SLG)
The neat thing about REITs is that they can specialize in very specific types of properties. Vornado — which we just looked at — owns office space, retail, and residential properties.
But what if you only want exposure to office buildings in NYC?
As it turns out, there is a REIT with that particular focus: SL Green Realty.
SL Green’s portfolio consists of interest in 77 buildings totalling 35.3 million square feet. In fact, it is the largest office landlord in Manhattan. The company has ownership interests in 27.1 million square feet of Manhattan buildings and 7.4 million square feet securing debt and preferred equity investments.
For investors looking for steady passive income, SL Green is particularly attractive. Most dividend stocks follow a quarterly distribution schedule. SL Green Realty, on the other hand, pays out dividends on a monthly basis.
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Right now, SL Green has a monthly dividend of $0.3033 per share, which comes out to an annual yield of 4.9%.
A private property opportunity
You don’t need to be a real estate mogul to start investing in REITs.
If you are working with a smaller budget, you may want to use an investing app that allows you to buy “slices of shares” of large real estate companies — especially one that comes with no trading fees.
Of course, if publicly-traded REITs don’t provide the stability you’re looking for, there are more “private” ways to get involved.
For instance, some popular investing services make it possible to lock in a steady rental income stream by investing in premium real estate properties, from commercial developments in Los Angeles to residential apartments in Washington D.C.
You’ll gain exposure to high-end properties that are typically off-limits to retail investors, and you’ll receive regular payouts in the form of quarterly dividend distributions.
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Jing is an investment reporter for Moneywise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
